The generation of revenue and profitability is the driving force behind most business models. To supplement the cash purchasing methods in today's credit-based society, most businesses depend on some form of credit or entitlement authorization mechanism allowing for customers to purchase products, services, or other such items without the immediate physical exchange of cash. Inherent in such business models is the reality that a percentage of parties who purchase on credit or entitlement authorizations may eventually not pay, thus, diminishing the business' overall profitability.
In order to balance the risk of such losses against the benefits of maintaining credit entitlement systems, businesses go to great lengths to pre-screen credit applicants with lengthy applications requiring a wealth of personal information. This process is often-times slow and many consumers may decide to take their business to a competitor rather than wait for the completion of the credit application process. Such verification methods maximize risk prevention, but are incompatible with situations that require more immediate determinations.
One example of a business that requires more immediate credit/authorization determinations is the telecommunication provider industry, and, more particularly, businesses that provide telecommunication services to controlled-environment facilities, such as prisons. Prisoners are generally given some form of access to telephones, but the calls must be paid for. Prisons typically do not allow inmates to receive calls, thus, most incoming calls that are not directed to prison administration numbers are blocked. Moreover, prisoners, in general, do not have ready access to cash; therefore, calls are typically made collect.
As with other credit/authorization systems, some of the collect calls may never be paid for by the called parties. In such circumstances, the telecommunication service provider fails to recover the costs of providing the call, which, in turn, causes a loss of profitability. Bad debt losses may sometimes reach into the tens of millions of dollars for each telecommunication service provider with the industry total well over $1 Billion. To address the risk of loss on some of the attempted correctional facility calls, telecommunication service providers sometimes obtain information on the called parties in order to establish a customer database for providing call verification/authorization. When an inmate attempts to make a collect call, the call or transaction request goes through a validation process. The telecommunication service provider accesses its customer databases and may be able to determine (1) can this call be billed (i.e., is there a billing arrangement with the local exchange carrier (LEC) or the called party), (2) if the destination number is already in the service provider's files, has the allotted credit limit been reached, and (3) has there been any information received from the LEC indicating that the called party has not been paying its bills. Depending on the extensiveness of the service provider's internal resources, the service provider may not be able to determine all three of these validation criteria. If favorable information is retrieved for each of the available validation criteria, the call is completed.
Conversely, if the inmate attempts to call a destination number that is not already on the customer database, or negative information is retrieved from the validation process, the service provider typically blocks the call from being completed. While these blocked calls save the telecommunication provider from losses for unpaid calls, some of those dropped calls represent lost potential revenue and profit that the provider would have generated.
Additional considerations that effect the revenue stream of telecommunication providers for prisons arise in the billing and collection (B&C) process. In providing collect calls, the service provider typically sends the collect call bill to the LEC that services the called number. LECs, such as Southwestern Bell, Verizon, BellSouth, Ameritech, and the like generally maintain accurate billing, name, and address (BNA) information, and may be authorized to bill third-party-provided telecommunication services if billing arrangements exists. It should be noted that for purposes of this disclosure, LEC is intended to include not only local exchange carriers, but also competitive LECs (CLECs), inter-exchange carriers (IXCs), and the like. LECs typically bill on a thirty-day billing cycle (i.e., provide a post-pay system that bills each customer for the telephone activity that occurred over the last thirty days). As with every other credit transaction, some LEC customers may fail to pay their bills. When this happens, the LECs recover any costs for providing the prisoner's call directly from the prison telecommunication service provider. Thus, the service provider carry all of the losses, which generally effects profit realization.
Moreover, because of the LECs' typical thirty-day billing cycle, the prison telecommunication provider may not become aware that the bill has become delinquent for a minimum of 120 days after the bill was originally sent to the LEC (LECs may not declare a particular bill uncollectable for 120 days or more in many circumstances). Thus, the service provider would not know to block further calls to that destination number for anywhere from four months to over a year. If calls continue to the delinquent destination number during that period, a substantial amount of revenue and profits would simply be lost.
A separate billing-related issue arises with LECs that do not have billing arrangements with the prison telecommunication service providers. If no billing arrangement exists with the LEC, the service provider must resort to billing the called party directly. In many circumstances, the service provider will not have accurate BNA information on the called party. The service provider may have to purchase this information from the LEC. Additional costs may then be expended generating the direct bill. Therefore, the costs of this “random” direct billing may exceed the actual value recovered in some cases, which decreases profits even further. In response, many of the current systems simply choose to block all calls to destination numbers serviced by non-contracting LECs in order to alleviate this problem. Thus, as with the calls blocked due to a failure to achieve immediate positive validation, the calls blocked due to non-existent billing arrangements with certain LECs may save some lost revenue and profits, but still represent potential lost profits at the point of demand for good paying customers.
Therefore, even though the business model of the prison telecommunications provider is centered on generating profits and recovering revenue, the service provider must account for the potential profit losses from (1) calls to destination numbers that are not blocked but which are ultimately not paid for; (2) continued calls to the same destination number that are allowed before the service provider becomes aware of delinquencies; (3) calls to destination numbers that may represent good credit risks and profit margins but which do not pass the initial validation process; (4) calls to destination numbers that represent good credit risks and profit margins that are nonetheless blocked because the destination number is serviced by LECs without billing agreements with the service provider. In addition to these different means for the service provider to lose revenue and eventually profits, service providers often contract with the prison or other such control-environment facility to pay the prison a commission on the value of each call provided for the privilege of providing the service to the prison. Because the commission typically is taken from the value of the call rather than the amount collected for the call, the commission will generally have to be paid regardless of whether the service provider actually ever collects the cost of the call. Many other different opportunities for revenue loss, such as governmental regulations, contractual commitments, and the like, also must be accounted for by these prison telecommunications providers.